Image source: The Motley Fool.
Osmotica Pharmaceuticals PLC (OSMT)
Q1 2020 Earnings Call
May 12, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Osmotica Pharmaceuticals First Quarter 2020 Business Update Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Lisa Wilson, Investor Relations for Osmotica. Thank you. Please go ahead.
Lisa Wilson -- Founder and President
Thank you, operator. Welcome to Osmotica Pharmaceuticals first quarter 2020 business update call. This is Lisa Wilson, Investor Relations for Osmotica. With me on today's call are Osmotica's Chief Executive Officer, Brian Markison; Chief Operating Officer, JD Schaub; and Chief Financial Officer, Andrew Einhorn. This afternoon, the company issued a press release detailing financial results for the three months ended March 31, 2020. This press release and a webcast of this call can be accessed through the Investors section of the Osmotica website at osmotica.com.
Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Osmotica's management as of today, and involve risks and uncertainties, including those noted in this afternoon's press release and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Osmotica specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.
During this call, we refer to non-GAAP measures such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to income or loss, please see the tables at the end of our press release. The archived webcast of this call will be available for 30 days on our website osmotica.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 12th, 2020. Since then, Osmotica may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.
And with that, I'll turn the call over to Osmotica's CEO, Brian Markison.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Thank you, Lisa, and good afternoon and thank you for joining the call. First, I would like to thank all of our employees who have remained focused and dedicated during this unprecedented time. Our manufacturing warehouse and supply chain colleagues have been showing up every day and have become the backbone of our company.
Our promoted products are performing reasonably well, and our Trigen business has been exceptional. Secondly, perhaps most importantly, the FDA review of RVL-1201, our novel treatment for blepharoptosis or droopy eye, appears to be on track to meet our July 16 goal date. While the pandemic will affect the early introduction and rollout of this innovative product, physician interest in KOL support continues to build.
Over the past few months, we have used advisory boards and focus groups to dive deeper into our future customer base. In a world where everyone may be wearing face masks for a period of time, the focus and attention to the eyes will become even more pronounced. RVL offers a treatment option to patients and clinicians that currently does not exist in today's armamentarium to treat acquired blepharoptosis or droopy eye. In the coming months, we anticipate a landmark publication of our two pivotal Phase III efficacy studies in a major eye care journal and our ex-US partnership efforts continue on pace.
Finally, our amended new drug application, or NDA, for arbaclofen remains on track to file by the end of June. As news of the pandemic was spreading earlier this year, our R&D team worked expeditiously to close out our long-term safety study. And I'm pleased to report that the study has been completed. As a reminder, Osmotica will be submitting arbaclofen with one of the largest databases globally for the treatment of management of multiple sclerosis spasticity.
Through our large Phase III programs, we have demonstrated efficacy and safety with a twice-a-day regimen. In fact, arbaclofen has exhibited dose response relationship with the 40 milligram and 80 milligram doses as measured by the modified Ashworth Scale and further demonstrated one year safety and tolerability that is unprecedented for this molecule.
Now, I'd like to turn the call over to Andrew Einhorn, who will discuss the company's financial results. Andy will be followed by JD, our Chief Operating Officer, who will share details of the company's promoted products. Andy?
Andrew Einhorn -- Chief Financial Officer
Thank you, Brian. Total revenues decreased by $8.5 million to $48.6 million for the three months ended March 31st, 2020 as compared to $57.1 million for the three months ended March 31st, 2019, primarily due to a decrease in net product sales. Net product sales decreased by $9.1 million to $47.3 million for the three months ended March 31st, 2020 as compared to $56.4 million for the three months ended March 31st, 2019, primarily due to declines for both methylphenidate ER and venlafaxine ER tablets stemming from lower net selling prices and volumes.
Selling, general and administrative expenses decreased by $0.5 million during the first quarter of 2020 to $21.2 million as compared to $21.7 million in the prior year quarter. The decreases reflect expense reductions associated with the sales force realignment in the third quarter of 2019, which was partially offset by increases in marketing costs associated with the expected launch of RVL-1201 severance costs associated with the sales force reduction during the first quarter of 2020.
Research and development expenses decreased in the first quarter of 2020 to $5.7 million as compared to $9.8 million in the prior year quarter, primarily reflecting the completion of the second Phase III clinical trial of arbaclofen AR during the first quarter of 2019, lower clinical trial costs related to RVL-1201 and the cost of manufacturing development batches of Osmolex in the three months ended March 31st, 2019, which costs were not present in 2020.
Net loss for the first quarter of 2020 was $3.1 million compared to a net loss of $6.7 million in the first quarter of 2019. Adjusted EBITDA for the first quarter of 2020 was $11.1 million compared to adjusted EBITDA of $16.6 million in the first quarter of 2019.
As of March 31st, 2020, we had cash and cash equivalents of $125.8 million and borrowing availability under our revolver of $50 million. We also had $271.4 million aggregate principal amount borrowed under our term loans. In January 2020, we completed a public equity offering generating $31.8 million of net proceeds after giving effect to underwriting discounts, commissions and offering expenses.
I will now turn the call over to JD.
James Schaub -- Executive Vice President and Chief Operating Officer
Thanks, Andy. The impact of COVID-19 is presenting unique challenges. And like all of us, we continue to monitor the situation closely. As an organization, we have been able to rapidly embrace new ways of working. I'm very pleased that we were able to effectively support our employees as they transition to working remotely, while protecting their well-being as well as the safety of our customers as we continue to ensure they get the information and education they need and patients receive uninterrupted access to our products.
During the first quarter of 2020, we continue to make progress on our strategic priorities, showed growth from our existing promoted brands, Divigel, M-72 and Osmolex with market-leading volume in our key generics, methylphenidate ER and venlafaxine extended release tablets, and continued preparations for the potential launch of RVL-1201.
Predictably, and more recently, the impact to our promotional efforts has resulted in a slowing of the growth rate with our existing brands into the second quarter as the national shelter-at-home orders extended and patient visits and new prescription trends have decreased. Fortunately, we believe the overall steps we are taking to navigate these uncertain times have to-date minimized significant impact to our business.
More specifically, all of our promoted brands saw continued prescription growth in the first quarter of 2020 when compared to the same period in 2019. Divigel grew approximately 10% versus the prior year quarter. And while the existing COVID dynamics impact our ability to be in front of our customers every day, we have seen continued strength with Divigel volume and expect it will continue to maintain its position as a market leader in topical estrogen replacement.
M-72 also experienced a strong first quarter as prescriptions grew 40% versus Q1 '19. We are encouraged by M-72's performance versus the broader ADHD market over the last 10 weeks. And although we anticipate a leveling of growth in the short-term, we expect the product to continue to grow as our reps resume more traditional promotional activities in the coming months.
Lastly, Osmolex prescriptions totaled 645 in the first quarter, despite the abrupt impact of COVID to the neurology space in early March. Amidst the disruption, we continue to focus on alternative ways to engage and connect, supporting patients and physicians via telesales, virtual education, online sample ordering and our patient services center with AccessOsmolex. We expect to continue to adapt our tactics through this challenging time and remain committed to the practitioners and patients who have embraced Osmolex through its first year on the market.
As Andy commented earlier in the financial highlights, our generic and non-promoted products business continues to be an important contributor, despite increased competition and consolidated buying. Our manufacturing, supply chain and operations colleagues have been well prepared to mitigate potential disruption during this time, and those efforts are greatly appreciated.
As we look toward the pipeline, we're gaining significant momentum with our launch planning for RVL-1201. As Brian touched on in his opening remarks, there is a lot to be excited about. And the last 10 weeks have created an opportunity to engage even more deeply with our KOLs and eye care professionals. While we are all being forced to adapt and adjust to the disruption, we've always believed in this launch as being about doing things differently.
To-date, there has not been a simple, safe and effective treatment option for all of the more than 15 million patients suffering from acquired doses in the US. With RVL, we will be launching an evolution in eye care, challenging the traditional and deploying a customer experience for patients and providers alike, unprecedented.
Our partnerships and collaboration with the ECP community will serve as the foundation for early momentum, creating strong connections and positive experiences from which we will build and expand. In all sincerity, the enthusiasm is contagious, and we believe the combination of a first-in-class product together with the launch of our novel cash pay business model will deliver a truly unique value proposition for providers fulfill a huge unmet need for the millions of patients and continue to transform our organization.
I will now turn the call back to Brian.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Thank you, JD. And operator, I'll turn it to you for the Q&A. Thank you.
Questions and Answers:
Operator
Thank you, sir. [Operator Instructions] Our first question comes from the line of Greg Fraser from SunTrust. Please go ahead.
Greg Fraser -- SunTrust -- Analyst
Great. Good afternoon, folks. Thanks for taking the questions. First, on RVL, has the economic environment and the risk there could be a prolonged downturn changed how you're thinking about positioning? And I'm specifically wondering if contracting with payers is something that you might reconsider?
Brian Markison -- Chairman of the Board and Chief Executive Officer
Yeah. Thanks for the question. I'll take the first part, and I think JD will take the second part. Our launch plans are proceeding. We do know that the review of the NDA is on track, at least the last time we touch base with the FDA. And I think what we're going to see is a bit of a slower ramp than what we originally anticipated. I mean, quite frankly, right now, the entire sales force physician model is on its ear. And as things begin to come back to a new normal, the rules for engagement with clinicians will be different no matter how we look at it. But we're taking the time as we mentioned earlier to spend a lot of time with our KOLs, with our key customers, and understand how they want to be approached. And it will be a combination of direct selling digital as well as other tactics as we go forward.
On the pay side, JD?
James Schaub -- Executive Vice President and Chief Operating Officer
Yeah. Thanks, Greg. The question I believe was, would we reconsider contracting with payers? And I think, our approach is rooted in transparency and simplicity. And no matter what way you cut it, this is a large market opportunity. I think our estimates and the research we've done in the 15 million plus patients out there with acquired doses across the continuum of mild-to-severe continues to tell us that the cash pay approach is the right approach and business model for this product and entering contracting discussions and trying to balance back and forth between a reimburse product and the challenges and lack of control and simplicity that comes from that direction versus the size of this patient population and the value proposition from a cash pay model that really drive sticking with that approach.
Greg Fraser -- SunTrust -- Analyst
Got it. That makes sense. I was also wondering if you could speak to your generic supply chain and the history of quality and whether you expect the US-centric nature of your model and the reliability of supply that you demonstrated over time to help you win business in this environment.
James Schaub -- Executive Vice President and Chief Operating Officer
Well, I think, the short answer is yes. Methylphenidate, for example, we manufacture in Marietta, Georgia, along with many other products, and venlafaxine manufactured in the US, but there's a lot of other companies that are trying to stake that same ground as well. We're just steady at it. We've been pre-emptive in our ability to secure all of our raw materials way in advance, and we're in very close communication with all of our customers. So, we don't see interruptions in supply chain for many of our products on the horizon.
Greg Fraser -- SunTrust -- Analyst
Got it. Thanks. I'll get back in the queue.
Operator
Thank you. Our next question comes from Ami Fadia from SVB Leerink. Please go ahead.
Ami Fadia -- SVB Leerink -- Analyst
Hi. Good afternoon. Thanks for taking my question. Wanted to follow-up on a prior question on RVL and your go-to-market strategy with an expected increase in unemployment and maybe more broader recessionary trend. Does that change your thinking around the pricing strategy for the product? And then, as you prepare for the launch, when do you start -- when do you expect to start building inventory? And should we expect to see some type of an impact on the R&D expense in the second quarter? And then I have maybe another question if you have time. Thanks.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Okay. So, we will begin to build inventory in the coming months, not -- really not before the end of May. But this is a drug that's very sort of straightforward to manufacture with our partner Nephron. And the lead time is not outrageously long. I think, beginning to end, we're looking at a month,-and-a-half to build inventory. So we're going to start probably in June. We've got excellent dating on the product.
With regard to pricing, we were always looking at a range between $75 and $100 a month. And quite frankly, I've been at $100, JD is going at $75. And I think, the current environment is not changing our perspective all that much. We continue to do a lot of market research and dip into the willingness to pay. And I think, this is something where it's going to become a lifestyle drug and people that do well with it and rely on it are not going to want to change and are going to be willing to pay between $75 and $100 a month. So, our thinking around pricing is pretty much in the same ZIP code.
JD, what would you add to that?
James Schaub -- Executive Vice President and Chief Operating Officer
Yeah, I would just say, Ami, that I think the current landscape has really, like many of our peers, force-continued adaptation and adjustment of really understanding, what are the ways in which our customers and, in this case with RVL in particular, the eye care professionals want to communicate and interact as we get this out there. The excitement and the enthusiasm is real. I don't think it's a question of, does the landscape in terms of unemployment impact pricing per se? There is a large market out there. We're launching this in a way that is controlled and really gets that -- the education and awareness that is necessary to build and create a market. And I think that's something that we're focused on and very comfortable doing right now.
Ami Fadia -- SVB Leerink -- Analyst
Okay. Two more questions, if I may, and they are both probably somewhat quick ones. Firstly, just with regards to arbaclofen, with the completed safety study, is there any additional color that you can give us with regards to the safety profile? And then, how should we think about volume trends for second quarter?
Brian Markison -- Chairman of the Board and Chief Executive Officer
Okay. So, with arbaclofen, the NDA -- our resubmission of the NDA is on track for the end of the second quarter, and we're very excited about that. And the clinical study reports are being drafted right now and reviewed by the team. And quite frankly, we have a lot of information that's going to go into the submission. That's very exciting to us. The completion of our one-year safety study at 80 milligrams, we just got it in that the finish line in March right when things started to shut down and international travel began to evaporate altogether.
And the safety and tolerability of 80 milligrams to over 100 people for a year, in my estimation, is unprecedented in terms of a tolerable product that a higher dose than has ever been delivered before. And we have additional information and additional data such as CSF levels of both arbaclofen and baclofen that will also be talking about in the near future and will be part of our submission that are also very interesting and it shows that with baclofen, the R, the S-isomer, is in the CSF and with arbaclofen, naturally only the R-isomer. And that may be a strong link to adverse events and somnolence in particular. So we'll be finessing that story over the coming months. But it's -- right now, it's all hands on deck to get the application. And then, trends, JD?
James Schaub -- Executive Vice President and Chief Operating Officer
Yeah. So, I think, just like the earlier comments about the overall trajectory of the business, we're fairly stable. I think, we've seen some of the headwinds over the last six weeks or so in terms of the drop off in patient visits and the NRX impact with few of our promoted brands like Divigel and M-72. But overall, I wouldn't say that we expect any massive cliffs in terms of Q1 into Q2 and probably just moderate tempering of the growth trends that we have seen in recent quarters and ultimately modestly down over the first quarter.
The good news, I think, for us is, we've talked about the supply chain stability and obviously on the generic side, but even with our branded business, we've been very focused on just maintaining consistent and stable levels of supply out there in the channel. So, I don't think that we've seen a huge spike in the first quarter ex-factory volumes that contributed to performance that then is going to come back around in the second quarter and it's really been focused, given strong supply on keeping things as level as possible.
On the generic side, I think we anticipate the consistency of market share and relative volume for the key products from quarter one to quarter two.
Ami Fadia -- SVB Leerink -- Analyst
Thank you.
Operator
Thank you. Our next question comes from David Steinberg from Jefferies. Please go ahead.
David Steinberg -- Jefferies -- Analyst
Thanks, and good afternoon. I have a couple of questions. The first is, Brian, I think you said that your dialogue with the FDA is progressing as expected and the PDUFA date you think will hold. So, to that end, I'm just curious, what exactly is the projected launch date? And right now, no patients are going in the CF optometrists. There are very few meetings with ophthalmologists and the things stay kind of the way they are or would you consider delaying your launch a little bit, I know some companies have delayed their launches? Or is there any seasonal impact that you want to pick up and that's why you'd want to launch right away?
And then, secondly, relating to collaborations, I think on the last call, you said that you've had a lot of dialogue with companies in Asia, particularly Japan. I think you said you had pretty serious discussions with at least two Japanese companies, and Japan is the second largest market after the US. Any progress there? And then, I guess, coming back to the US, given the fact that you've made this decision to prices on a cash pay business, and it would be largely a consumer product. Any thoughts on doing some sort of collaboration with the larger company in the United States to help launch RVL? Thanks.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Okay. That's a bunch of questions. So, ex-US partnership conversations are proceeding, I would say, nicely. We have a pretty competitive process and we are planning to complete these negotiations within the quarter, but it may spill a little bit into the next quarter. I'm hedging a bit because we just can't get on an airplane and see each other and hammer out details. But we do have a good process, we're pleased with it, and I think it's going to bear fruit fairly soon.
RVL. So, look, we're in an environment, and you know this from all the companies you cover, where people are sort of making deal up as they go. Here's what's factual that I can tell you. Upon approval, we are going to reach out to a core number of high prescribers, KOLs that we've been talking to and working with. And we're going to get them going right away. And these are people that we're talking to every day during the pandemic, while we're in lock down.
We're going to get a lot of information and experience with that core group. And as we're developing that time and model, we will begin to expand softly as different states and different organizations open up to see reps and open up their practices more formally. So, we're going to call this a controlled launch. We're going to start with a small group right away. That's -- if we get approval on our goal date of July 16th, let's say, we'll be putting product in people's hands in a couple of weeks from that date, but we're going to start with a small group. We're going to test it out. We're going to learn a lot, and then it will be something we can replicate doctor by doctor, have a great sense of the return on investment, and then build back up from there and begin to throttle up the expenses as we go forward. We don't see any seasonality. And I think that was all the questions. Right?
David Steinberg -- Jefferies -- Analyst
I think that covers it.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Okay, good.
Andrew Einhorn -- Chief Financial Officer
Thanks, David.
Operator
Thank you. [Operator Instructions] Our next question comes from Randall Stanicky from RBC Capital Markets. Please go ahead.
Randall Stanicky -- RBC Capital Markets -- Analyst
Great. Thanks. Hey, Brian. There is a lot of aesthetics offices across the US getting hit pretty hard. I have to take looking for opportunities to make more money, try to catch up to cover costs. Spatial toxins are going to be quick, highly profitable, but so was cross-selling. At what point, do you look at RVL and partner with a firm on the aesthetic side and attack that market too. And what do you need to do to do that? And then I have a follow-up.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Yeah. So, that was the -- I think the third question as well that David asked, that I didn't get to. We can -- we're thinking about partnering in the aesthetic space, to be quite frank. And we're having a few conversations that are advanced, but not completely convinced that we can't do it ourselves, because this drug is so novel, it is complementary with a lot of the things that the aesthetic physician is doing right now. So, I think we're waiting into this very carefully.
I think, JD, I mean, what would you add to that?
James Schaub -- Executive Vice President and Chief Operating Officer
I think, Brian's points aside, Randall, we are developing our own relationships with the practitioners and KOLs in the aesthetic space right now, and using that to really assess and balance the merits of the ongoing conversations with the opportunities to build it and go it alone and I think like most of the decisions that we ultimately make are rooted in optimizing and maximizing ultimate value here.
Randall Stanicky -- RBC Capital Markets -- Analyst
And Brian, you touched on my second question, so talk about the existing sales structure. You've got your tone in a few different waters here therapeutically. How are you thinking about the sales force split and, more importantly, what point do you start thinking about adding additional products in licensing to further leverage the sales force and some of those therapeutic areas specifically?
Brian Markison -- Chairman of the Board and Chief Executive Officer
Yeah, great question, Randall. We're thinking that once we start to sell RVL, we are going to basically turn this organization almost completely in that direction and that the current promoted products Divigel M-72 will take really a background position, reminder calls, maybe telesales, virtual detailing to support those products. But the growth of RVL that we anticipate relative to the other brands makes the trade-off decision really a no-brainier.
On the acquisition front, we would love to partner with tuck-in [Phonetic], an eye care company or an aesthetic company that's in this space. And right now, we've got a neuro sort of arm, a women's health arm, and we're developing this eye care space. We could see ourselves pruning the portfolio on one end, possibly women's health down the road, and maybe other products. But right now, we're in a very good spot where we've got a great cash position and we can finance a structured launch.
And I think what we're going to wait for is, as we roll out the launch, we will get a feel for the uptake, and that's going to determine how we add more reps. But our plan for the back end of the year was to launch the drug with around 150 sales representatives. I'm not sure all of them are necessary any longer in this calendar year, because they may not be getting into all of the offices. So we have a smaller group. Right now, we have around 65 reps to 70, and we will expand once we get a strong sense of physician receptivity and uptake and how we can defend it with the return on investment model.
Randall Stanicky -- RBC Capital Markets -- Analyst
Great. Thanks, guys.
Operator
Thank you. I show no further questions in the queue. At this time, I'd like to turn the call back over to Mr. Brian Markison, CEO, for closing remarks.
Brian Markison -- Chairman of the Board and Chief Executive Officer
Okay. Well, thanks, everybody, for joining the call. We really appreciate your time. Please stay safe and social distance. Thank you. Bye.
Operator
[Operator Closing Remarks]
Duration: 35 minutes
Call participants:
Lisa Wilson -- Founder and President
Brian Markison -- Chairman of the Board and Chief Executive Officer
Andrew Einhorn -- Chief Financial Officer
James Schaub -- Executive Vice President and Chief Operating Officer
Greg Fraser -- SunTrust -- Analyst
Ami Fadia -- SVB Leerink -- Analyst
David Steinberg -- Jefferies -- Analyst
Randall Stanicky -- RBC Capital Markets -- Analyst
